Concepts in Enterprise Resource Planning: Chapter One Business Functions and Business Processes

Concepts in Enterprise
Resource Planning
Third Edition
Chapter One
Business Functions and Business
Processes
Objectives
After completing this chapter, you will be able to:
Name the main functional areas of operation used in
business
Differentiate a business process from a business
function
Identify the kinds of data that each main functional
area produces
Identify the kinds of data that each main functional
area needs
Define integrated information systems and explain why
they are important
Concepts in Enterprise Resource Planning, Third Edition
History of Information Systems Within

Organizations
Functional Systems
Functional systems facilitated the work of a single

department or function.
These systems grew as a natural expansion of the
capabilities of systems of the first era.
Payroll expanded to become human resources.
General ledger became financial reporting.
Inventory was merged into operations or
manufacturing.
These new functional areas added features and functions
to encompass more activities and to provide more value
and assistance.
The problem with functional applications is their isolation.
Functional applications are sometimes called islands of
automation.
Introduction
Enterprise Resource Planning (ERP) programs:
Core software used by companies to coordinate
information in every area of business
Help manage companywide business processes
Use common database and shared management
reporting tools
Business process: Collection of activities that

takes some input and creates an output that is of
value to the customer
Competitive Strategy and Value Chains
When Michael Porter wrote the now-classic Competitive

Advantage in the mid-1980s his ideas laid the groundwork
for solving the problems of isolated information systems.
Porter defined and described value chains, which are
networks of business activity that exist within an
organization.
Porter also developed a model of competitive strategies that
helps organizations choose which information systems to
develop.
The Value Chain

Value in the Porter model is the total revenue that a customer is
willing to spend for a product or service.
Value is stressed rather than cost because an organization that
has a differentiation strategy may intentionally raise costs in order
to create value.
Margin is the difference between cost and value.
Functional Areas and Business

Processes
To understand ERP, you must understand how a
business works
Functional areas of operation
Business processes
Functional Areas of Operation
Marketing and Sales (M/S)

Supply Chain Management (SCM)
Accounting and Finance (A/F)
Human Resources (HR)
Business functions: Activities specific to a
functional area of operation
Functional Areas of Operation (contd.)
Figure 1-1 Examples of functional areas of operation and their business

functions
10
Functional Areas of Operation (contd.)

Functional areas are interdependent
Each requires data from the others
Better integration of functional areas leads to

improvements in communication, workflow, and
success of company
Information system (IS): Computers, people,
procedures, and software that store, organize, and
deliver information
11
Business Processes
Collection of activities that takes one or more kinds
of input and creates an output that is of value to
customer
Customer can be traditional external customer or
internal customer
Thinking in terms of business processes helps

managers to look at their organization from the
customers perspective
12
Business Processes (contd.)
Figure 1-2 Sample business processes related to the sale of a

personal computer
13

Businesses must always consider customers
viewpoint in any transaction
Successful customer interaction
Customer (either internal or external) is not required
to interact with each business function involved in
the process
Successful business managers view business

operations from the perspective of a satisfied
customer
14

Sharing data effectively and efficiently between and
within functional areas leads to more efficient
business processes
Integrated information systems: Systems in
which functional areas share data
15
Figure 1-3 A process view of business

16

Businesses take inputs (resources) and transform
these inputs into goods and services for customers
Inputs: Material, people, equipment
Managing inputs and business processes

effectively requires accurate and up-to-date
information
17
Functional Areas and Business

Processes of a Very Small Business
Example: A fictitious lemonade stand
Examine business processes of the lemonade stand
See why coordination of functional areas helps
achieve efficient and effective business processes
Look at how integration of the information system
improves the business
18
Marketing and Sales

Functions of Marketing and Sales
Developing products
Determining pricing
Promoting products to customers
Taking customers orders
Helping create a sales forecast
19
Marketing and Sales (contd.)

Marketing and Sales tasks for the lemonade stand
Formal recordkeeping not required

Need to keep track of customers
Product development can be done informally
Good repeat customers allowed to charge
purchasesup to a point
Records must show how much each customer owes
and his or her available credit
20
Supply Chain Management

Functions within Supply Chain Management
Making the lemonade (manufacturing/production)
Buying raw materials (purchasing)
Production planning requires sales forecasts from

M/S functional area
Sales forecasts: Analyses that attempt to predict
the future sales of a product
21
Supply Chain Management (contd.)

Production plans used to develop requirements for
raw materials and packaging
Raw materials: Bottled spring water, fresh lemons,
artificial sweetener, raw sugar
Packaging: Cups, straws, napkins
SCM and M/S must choose a recipe for each

lemonade product sold
22
Accounting and Finance

Functions within Accounting and Finance
Recording raw data about transactions (including
sales), raw material purchases, payroll, and receipt
of cash from customers
Raw data: Numbers collected from those

operations, without any manipulation, calculation,
or arrangement for presentation
23
Accounting and Finance (contd.)

Data from Accounting and Finance used by
Marketing and Sales and Supply Chain
Management
Sales records are important component of sales
forecast
Sales forecast is used in making staffing decisions
and in production planning
Records from accounts receivable used to monitor
the overall credit-granting policy of the lemonade
stand
24
Human Resources
Functions of Human Resources
Recruit, train, evaluate, and compensate employees
HR uses sales forecasts developed by the

individual departments to plan personnel needs
Systems integrated using ERP software provide
the data sharing necessary between functional
areas
25
Functional Area Information Systems

Potential inputs and outputs for each functional
area described next
Note the kinds of data needed by each area and
how people use the data
Information systems maintain relationships
between all functional areas and processes
26
Marketing and Sales

Needs information from all other functional areas
Customers communicate orders to M/S in person
or by telephone, e-mail, fax, the Web, etc.
M/S has a role in determining product prices
Pricing might be determined based on a products
unit cost, plus some percentage markup
Requires information from Accounting and Finance,
and Supply Chain Management data
27
Figure 1-4 The Marketing and Sales functional area exchanges data with
customers and with the Human Resources, Accounting and Finance, and
Supply Chain Management functional areas
28

M/S needs to interact with Human Resources to
exchange information on hiring needs, legal
requirements, etc.
Inputs for M/S
Customer data
Order data
Sales trend data
Per-unit cost
Travel expense company policy
29

Outputs for M/S
Sales strategies
Product pricing
Employment needs
30
Supply Chain Management

Needs information from various functional areas
Production plans based on information about
product sales (actual and projected) that comes
from Marketing and Sales
With accurate data about required production
levels:
Raw material and packaging can be ordered as
needed
Inventory levels can be kept low, saving money
31

Supply Chain Management data and records can:
Provide data needed by Accounting and Finance to
determine how much of each resource was used
Support the M/S function by providing information
about what has been produced and shipped
Supply Chain Management interacts in some ways

with Human Resources
32
Figure 1-5 The Supply Chain Management functional area exchanges data
with suppliers and with the Human Resources, Marketing and Sales, and
Accounting and Finance functional areas
33

Inputs for SCM
Product sales data

Production plans
Inventory levels
Layoff and recall company policy
34

Outputs for SCM
Raw material orders

Packaging orders
Resource expenditure data
Production and inventory reports
Hiring information
35
Accounting and Finance

Needs information from all other functional areas
A/F personnel:
Record companys transactions in the books of
account
Record accounts payable when raw materials are
purchased and cash outflows when they pay for
materials
Summarize transaction data to prepare reports
about companys financial position and profitability
36

People in other functional areas provide data to A/F
M/S provides sales data
SCM provides production and inventory data
HR provides payroll and benefit expense data
M/S personnel require data from A/F to evaluate

customer credit
37
Figure 1-6 The Accounting and Finance functional area exchanges data with
customers and with the Human Resources, Marketing and Sales, and Supply
Chain Management functional areas
38

Inputs for A/F
Payments from customers

Accounts receivable data
Accounts payable data
Sales data
Production and inventory data
Payroll and expense data
39

Outputs for A/F
Payments to suppliers
Financial reports
Customer credit data
40
Human Resources
HR needs information from the other departments
Tasks related to employee hiring, benefits, training,
and government compliance are all responsibilities
of HR
HR needs accurate forecasts of personnel needs
from all functional units
HR needs to know what skills are needed to
perform a particular job and how much the
company can afford to pay employees
41
Human Resources (contd.)
Figure 1-7 The Human Resources functional area exchanges data with the
Accounting and Finance, Marketing and Sales, and Supply Chain Management
functional areas
42

Observing governmental regulations in recruiting,
training, compensating, promoting, and terminating
employees
Inputs for HR
Personnel forecasts
Skills data
43

Outputs for HR
Regulation compliance
Employee training and certification
Skills database
Employee evaluation and compensation
44

Significant amount of data is maintained by and
shared among the functional areas
Timeliness and accuracy of these data critical to
each areas success and to companys ability to
make a profit and generate future growth
ERP software allows all functional areas to share a
common database
Allows accurate, real-time information to be available
45
Summary
Basic functional areas: Marketing and Sales, Supply
Chain Management, Accounting and Finance, and
Human Resources
Marketing and Sales: Sets product prices, promotes
products through advertising and marketing, takes
customer orders, supports customers, and creates
sales forecasts
Supply Chain Management: Develops production
plans, orders raw materials from suppliers, receives
raw material, manufactures products, maintains
facilities, and ships products to customers
46
Summary (contd.)
Accounting and Finance: Financial accounting to
provide summaries of operational data in
managerial reports, controlling accounts, planning
and budgeting, and cash-flow management
Human Resources: Recruits, hires, trains, and
compensates employees, ensures compliance with
government regulations, and oversees the
evaluation of employees
Information systems capture, process, and store
data to provide information needed for decision
making
47
Summary (contd.)
Employees working in one functional area need
data from employees in other functional areas
Functional area information systems should be
integrated, so shared data are accurate and timely
Managers think in terms of business processes that

integrate the functional areas
Need to share information between functions and
functional areas
ERP software provides this capability by means of a
single common database
48

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Concepts in Enterprise Resource Planning: Chapter One Business Functions and Business Processes

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Concepts in Enterprise

History of Information Systems Within

Functional systems facilitated the work of a single

Business process: Collection of activities that

Concepts in Enterprise Resource Planning, Third Edition

Competitive Strategy and Value Chains

When Michael Porter wrote the now-classic Competitive

The Value Chain

Functional Areas and Business

Concepts in Enterprise Resource Planning, Third Edition

Functional Areas of Operation

Marketing and Sales (M/S)

Concepts in Enterprise Resource Planning, Third Edition

Functional Areas of Operation (contd.)

Figure 1-1 Examples of functional areas of operation and their business

Functional Areas of Operation (contd.)

Better integration of functional areas leads to

Concepts in Enterprise Resource Planning, Third Edition

Thinking in terms of business processes helps

Concepts in Enterprise Resource Planning, Third Edition

Business Processes (contd.)

Figure 1-2 Sample business processes related to the sale of a

Business Processes (contd.)

Successful business managers view business

Concepts in Enterprise Resource Planning, Third Edition

Business Processes (contd.)

Concepts in Enterprise Resource Planning, Third Edition

Business Processes (contd.)

Figure 1-3 A process view of business

Business Processes (contd.)

Managing inputs and business processes

Concepts in Enterprise Resource Planning, Third Edition

Functional Areas and Business

Concepts in Enterprise Resource Planning, Third Edition

Marketing and Sales

Concepts in Enterprise Resource Planning, Third Edition

Marketing and Sales (contd.)

Formal recordkeeping not required

Concepts in Enterprise Resource Planning, Third Edition

Supply Chain Management

Production planning requires sales forecasts from

Concepts in Enterprise Resource Planning, Third Edition

Supply Chain Management (contd.)

SCM and M/S must choose a recipe for each

Concepts in Enterprise Resource Planning, Third Edition

Accounting and Finance

Raw data: Numbers collected from those

Concepts in Enterprise Resource Planning, Third Edition

Accounting and Finance (contd.)

HR uses sales forecasts developed by the

Concepts in Enterprise Resource Planning, Third Edition

Functional Area Information Systems

Concepts in Enterprise Resource Planning, Third Edition

Marketing and Sales

Concepts in Enterprise Resource Planning, Third Edition

Marketing and Sales (contd.)

Marketing and Sales (contd.)

Concepts in Enterprise Resource Planning, Third Edition

Marketing and Sales (contd.)

Concepts in Enterprise Resource Planning, Third Edition

Supply Chain Management

Concepts in Enterprise Resource Planning, Third Edition